Hitting pay dirt: mining industry continues to cash in on soaring metals prices.
Mexican mining companies are flying high these days as soaring metals prices on global markets emerge from several years in the doldrums. Silver prices hit 16-year highs in early April of US$8.15 per ounce, up from about US$5 an ounce in April of last year. Similarly, copper prices recently hit an eight-year high and gold was near a 15-year high.
The price recovery in everything from gold and silver to copper is a welcome boom in Mexico, home to the world's third-largest copper producer, Grupo Mexico, and the world's biggest refined silver producer, Industrias Penoles.
BACKBONE OF BOLSA
Shares in the Mexican mining giants have been among the best performers on Mexico's IPC stock index in the past year. Stock value for Penoles, the best performer on the index, is up an astounding 260% in the last 12 months.
Grupo Mexico stock, the third-best performer, rose steadily in the past year as the company, buoyed by the improving metals climate and aggressive moves to refinance debt, saw its shares rise more than 40% since January. After years of financial struggle and production cutbacks that left machinery listing in its giant open-pit copper mines, Mexico City-based Grupo Mexico looks like it could be finally out of the clouds after its 1999 purchase of U.S.-based Asarco Inc. forced it to take on a mountain of debt.
The company started a phenomenal recovery in April 2003, when it completed a US$879.2 million credit restructuring, extending its debt maturities and allowing it to take advantage of rising copper prices, currently at about US$1.30/pound compared to about 70 cents in the second quarter of last year.
Investors applauded the move and the company's stock skyrocketed, more than tripling since then to over 40 pesos a share currently, up from near 12 pesos a share before the restructuring was announced.
In recent months the company rewarded investor confidence by announcing in March that it had successfully repaid US$200 million in loans taken out by its rail unit a year ago. Grupo Mexico paid the debt by issuing bonds, paying off dollar debt and converting it to more manageable peso-denominated currency.
These days the company is talking about boosting output at its copper mines and is working on a deal to transfer its Mexican mining shares to its Southern Peru Copper subsidiary.
If accepted by Southern Peru, the deal could help Grupo Mexico's debt profile even further and allow it to piggyback on Southern Peru for a listing on the New York Stock Exchange. Not least of all, a successful deal would boost Grupo Mexico's copper output even further, good news considering every 1 cent improvement in the copper price adds about US$20 million to company revenue.
PLANS FOR EXPANSION
Penoles, which owns the world's largest silver mine, can't complain either. Riding the rise in silver prices in recent months, the company plans to spend as much as US$300 million dollars in 2004 in mine expansions and exploration.
The company, also based in Mexico City, will invest US$110 million this year in its first foray into a pure copper play, the Milpillas copper project. The project has a total price tag of US$203 million and is set to come on line in 2005. In exploration, Penoles aims to concentrate on its star Fresnillo silver mine in Zacatecas state and gold ventures in the states of Sonora and Durango. Enthusiasm for the improved global metals market is reflected in Mexican mining statistics overall.
The Mexican statistics institute Inegi said in its most recent report of the mining industry that silver output rose nearly 18% in January, compared to the same month a year ago. In the same month gold output rose nearly 15%, lead production was up 22% and copper output soared more than 40%. Zinc production fell about 3% in the month.
Rising global metals prices are also drawing a lot of junior miners to Mexico, known since colonial times for its rich mineral wealth. The federal government is taking the upturn in prices, which is cyclical, seriously and plans to extend some 2.5 billion pesos in financing to small miners this year.
The funds represent a 20% rise over mining credit last year and are about six times the financing provided by the government in 2000. By all accounts, jumping on the cyclical upsurge in global metals prices is an opportunity nobody in the Mexican mining industry can afford to pass up.
George Terrats is a Mexico City-based freelance writer.
Non-metallic Mineral Production Value in Mexico: 2003 In millions of dollars Coke 197 Mineral Coal 183 Salt 84 Flouride 81 Sulphur 73 Gypsum 47 Silice 44 Others 70 Total: US$779 million Note: Table made from pie chart. Metallic Mineral Production Value in Mexico: 2003 In millions of dollars Copper 572 Silver 462 Zinc 368 Gold 259 Iron 145 Lead 76 Others 79 Total: US$1.96 billion Note: Table made from pie chart.